South Africa's Aspen Pharmacare cut its offer for Sigma Pharmaceuticals by 8 percent to $552 million on Wednesday, raising more doubts if the bid for the debt-laden Australian group will go through.
Analysts have said that price is critical for Aspen, given Sigma's debt and management turmoil: its chairman, chief executive and chief financial officer all stepped down after it booked an annual loss this year.
Sigma, which controls about a quarter of Australia's generics drugs market, wrote down the value of its generics business last week and warned it expected the tough environment to continue until at least 2012.
Aspen, Africa's largest drug company, is keen to boost its presence in Australia's competitive generics market, where it remains a minor player, and push further into fast-growing Asia.
"Shareholders in Aspen will not look kindly on management if they overpay for what, essentially, amounts to second-tier assets," said Nino Frodema, a portfolio manager at Metropolitan Asset Management in Cape Town.
"The attraction of Sigma for Aspen would be the distribution network that it has, which could complement Aspen's own Australian business and help it gain critical mass in the Australian market."
Aspen reduced its offer to A$0.55 a share from A$0.60 following a review of Sigma's books and Sigma's write down of its generic unit last week.
That would cut the size of the bid to A$648 million ($552 million) from A$707 million previously.
Aspen's offer also comes with 11 conditions, Sigma said in a statement. For example, Sigma's current lending facilities must mainly remain unchanged, the Australian company said.
Sigma told its shareholders to take no action on the new offer.
Analysts have said it would be difficult for Sigma's board to recommend a lower offer, considering that its shares were trading at more than double the offer level just a year ago.
Sigma's shares finished 14 percent higher at A$0.45 after the announcement, but remained well below the new offer price, underscoring investors concern about the prospects for the deal.
The new bid is 39 percent above Sigma's closing price on Tuesday. The original bid was 71 percent above Sigma's share price the day before the bid was announced on May 21.
Sigma said it extended an exclusivity period for talks with Aspen to Aug. 2 after Aspen sought more time for due diligence.
Sigma's shares are down 55 percent so far this year, following an A$390 million annual loss and the departure of its top executives.
Sigma's lenders have forced it to sell A$100 million in assets by March 2011 to help cut debt.
Shares of Aspen were little changed in Johannesburg trade on Wednesday, down 0.2 percent at 76.04 rand as of 12:08 SA time. - Reuters